Paramount net gearing may rise after land deal

PETALING JAYA: Paramount Corp Bhd’s latest land acquisition, while seen as a positive effort to re-strategise its property development portfolio, is however adding to the company’s growing gearing level.

In a report, RHB Research estimated that the company’s net gearing could rise to about 0.8-times from 0.71-times currently, following the new land purchase.

“While we like management’s effort to re-strategise its property development portfolio, we are somewhat concerned with the rising net gearing trend. Last December, Paramount also entered into a joint venture to develop a project at Section 14 (Petaling Jaya).

“Given its initial funding commitment of RM80mil, as well as the acquisition cost of RM150mil for this land in Cyberjaya, the company still needs RM138mil in bank borrowings after offsetting the RM92mil sale proceeds of the land in Kota Damansara,” said the research house in a report yesterday.

RHB added that the impact to its earnings estimates was minimal, given the higher interest expense and the expected maiden earnings from the Cyberjaya land in 2019.

Last Friday, Paramount announced that it was buying 41.4 acres in Cyberjaya for RM149.7mil, which the company planned to develop into a high-end gated residential project.

RHB Research said the purchase price for the land was “reasonable.”

“Although the land cost of RM83 per sq ft is more than double than that when the company purchased its 50-acre parcel in Cyberjaya in June 2010, the new land comes with approval for development as well as ready infrastructure and duly completed earthworks. Hence, we think the price is reasonable.”